As its name implies, the interest rate on a fixed-rate loan remains the same for its entire term. This option has long been the most popular type of home loan in the United States since most borrowers prefer predictable monthly payments.
However, fixed-rate mortgages can have higher monthly payments than adjustable-rate mortgages (ARMs). This is generally because the interest rate remains unchanged for the duration of the loan. Typically, mortgages with longer terms have a higher interest rate than loans with shorter terms due to interest rate risk or the possibility of fluctuating rates.
Here’s what you should know about fixed-rate loans:
- Your monthly payment will remain the same, even if interest rates rise.
- Most borrowers opt for a 30-year term, but shorter options—such as 15 or 20 years—do exist.
- Fixed-rate loans typically have easier-to-understand terms and paperwork.
- The payments made during the initial years of a fixed-rate loan consist primarily of interest payments.
- Fixed-rate mortgages are typically the choice for a borrower who plans on staying in their home for a long period of time.
Would you like to learn more about fixed-rate loans? We can answer any questions you may have or even help you begin your loan application.